NZ Morning Focus

- Yellen did not stray too far from last week’s outlook, erring on the side of caution.

- Brexit polls continue to suggest it is too close to call.

- Draghi noted that the ECB is ready for the ‘Brexit’ vote. Also, "more stimulus" in the pipeline comes in the form of TLTRO offerings.

OUTLOOK

UPCOMING TODAY: NZ migration (10.45am) and credit card spending (3.00pm) for May. Recent migration data has hinted that a top is in place. However, the net inflow overall looks set to remain high for some time yet.

CURRENCY: Range bound for now, but the ‘Brexit’ vote later in the week and opinion polls leading up to it will no doubt shape direction.

RATES: Rates traded in tight ranges overnight. London reported some pay side pressure for kiwi rates, which may see the curve open a touch higher.

REVIEW

GLOBAL MARKETS OVERVIEW: Yellen’s testimony to the Senate offered few new clues on the path of normalisation. However, there was a subtle change in tone from being on watch for whether, rather than when, the US economy would show clear signs of improvement. This, alongside ‘Brexit’ polls showing it will be a very tight result either way, saw fairly tight ranges in equity, FX and rates markets. US and European equities rose 0.2-0.8%. Treasury yields initially fell slightly on the release of Yellen’s prepared remarks, although moves were later paired and yields are relatively unchanged. European yields were also relatively unchanged with the only outlier being UK 10-year yields up 4.8bps. In FX markets, the EUR dipped to 1.125, with Draghi highlighting that "more stimulus" from the ECB is available and that it is prepared for the ‘Brexit’ vote. The GBP found some resistance after quickly approaching the 1.48 level in early trading, currently trading around 1.467. Notably, George Soros weighed in on ‘Brexit’ saying GBP would fall as much as 20% if the UK were to leave. The CRB index fell by 0.7%, with a drop in grain prices as weather conditions improve in US.

DATA PULSE

NO WORRIES HERE: Germany’s investor ZEW survey for the six month ahead outlook rose to 19.2. A measure of current conditions also came in above expectations at 54.5.

COMMENTARY - KEY THEMES AND VIEWS

OFFSHORE CONTINUES TO HOLD SWAY: Domestic economic activity continues along at a steady pace, but offshore events hold sway in shaping the near-term future. Last night it was a continuation of the cautious variety. Yellen looks is no hurry to normalise US rates noting "proceeding cautiously in raising the federal funds rate will allow us to keep the monetary support to economic growth in place while we assess whether growth is returning to a moderate pace, whether the labor market will strengthen further, and whether inflation will continue to make progress toward our 2 percent objective." Across the Atlantic, her counterpart Mario Draghi also noted there is "more stimulus" in the pipeline in the form of TLTLRO offerings and now is the time to focus on implementation of measures.

TIGHT RACE: The latest Survation poll for ‘Brexit’ was at 45% for remain against 44% for leave; while an earlier SurveyMonkey poll indicated a one point lead for the leave campaign. With margins of error likely at least a point for the surveys these results highlight it is just too close to call.